AKTU Behavioural Finance (BMBFM04) Syllabus PDF – MBA 4th Semester

Course Objectives

1. To understand the foundations of rational finance and behavioural finance, and the challenges behavioural finance poses to traditional financial theories.
2. To apply knowledge of cognitive and emotional biases in making informed and rational investment decisions
3. To analyze the impact of overconfidence, herd behaviour, and other social factors on financial markets division and investor decisions.
4. To evaluate the principles of value investing through the lens of behavioural biases and investor psychology.
5. To develop informed investment strategies by integrating behavioural insights into financial decision-making and market outcomes.

Unit I 8 Hours

Introduction to Behavioral Finance: Foundations of behavioral Finance, behavioral Finance Vs Conventional Finance Rational Markets Hypothesis and Challenge of Behaviouralist : Intellectual Underpinnings, The rise of Rational Market Hypothesis, Impact on wall street and the choices, The Challenge of Behaviouralist, Synthesis and Future Horizons. Impact on Capital Market Foundations of Rational Finance: Introduction, Neoclassical, Economics, Rational Preferences, Utility maximization, Relevant information; Expected Utility Theory, Modern Portfolio Theory, Capital Asset Pricing Model, Efficient Markets Hypothesis, Agency Theory, From Rationality to Psychology.

Unit II Hrs 8

Heuristics and Biases : How the Human mind Works: The Two Systems, Familiarity and related Heuristics, Anchoring, Irrationality and Adaption, Hyperbolic Discounting.

Self Deception: Introduction, Miscalibration, Forms of Over confidence, Causes of Over confidence, Other forms of self- Deception, Implications of Over confidence for financial decision making.Factors Impeding correction, How much do the experts know, the Success equation: Untangling skill and Luck in business.

Unit III Hrs 8

Prospect Theory, Framing and Mental Accounting: Error in Bernoullis Theory, Prospect Theory, SP/A Theory, Framing, Mental Accounting, From theory to practice.

Challenge to market efficiency: Theoretical foundations of EMH, Empirical for EMH, Theoretical Challenges for EMH, Noise trading and limits to Arbitrage, Keynes Beauty contest and guess- a number game, Assessment of EMH.

UNIT IV Hrs 8

Investor Behaviour: Portrait of an individual investor, what the heuristics and biases mean for financial decision making, implications of: emotions and mental accounting. Behavioural portfolio theory, psychographic models, basic ingredients of sound investment philosophy, guidelines for overcoming psychological biases.

UNIT V Hrs 8

Market outcomes: Size effect and seasonality, Momentum and reversal, post- earnings announcement drift, value premium, premium puzzle, excessive volatility, Bubbles, Behavioral Asset Pricing Model.

Value Investing: Central tenets of value investing, Evidence and prospects of value investing, Strategies of well-known value investors, academic research on value investing.

Course Outcomes

Reference Books

1. Chandra Prasanna (2016): Behavioral Finance, Tata Mc Graw Hill Education(India) Private Limited, Chennai.
2. Acket Lucy F and DeavesRichard(2011): Understanding Behavioral Finance, CENGAGE Learning.
3. Wood, Arnold Ed(2010), Behavioral Finance and Investment Management, Charlottesville, Virginia: Research Foundation of CFA Institute.
4. PompianM(2006): Behavioral Finance and Wealth Management: How to build optimal portfolio’s That account for Investor Biases, New Jersey: John Wiley and Sons.
5. Peterson Richard(2007): Inside the investors Brain: The power of mind over money, Hoboken, N.J.: John Wiley and Sons.